Migrants send home three times more money than countries receive in development aid, says World Bank

Research into remittances shows that migrant workers and diaspora make significant contribution to the poorest countries

Filipino workers gather each Sunday at the HSBC building in Central Hong Kong. Filipinos are sending more money and clothes to the Philippines than ever before due to the deteriorating economic situation. Photograph: Paul Hilton/Getty Images

More than 200 million people live outside the country of their birth, and according to recent research from the World Bank, the money that these migrants send home is a significant yet often over-looked source of development funding. The Bank's new Migration and Remittances Factbook 2011, launched this Monday, puts the overall value of remittances at three times the amount of development aid.

What's more, while levels of both overseas development assistance and foreign direct investment fell dramatically with the financial crisis, remittance flows were comparably resilient, hiccupping but never plummeting.

"Remittances in 2008 and 2009 became even more of a lifeline to poor countries, given the massive decline in private capital flows sparked by the crisis," says Dilip Ratha, manager of the World Bank's migration and remittance unit.

The size, relative resilience, and rate of growth of remittances are drawing increasing attention from development economists and policy-makers eager for alternative and innovative sources of development financing.

According to the Factbook's estimates, documented remittance flows to developing countries in 2010 are expected to reach $325 billion (£203 billion), up from $307 billion (£191 billion) in 2009. The majority of this money (in absolute terms) flows to middle-income countries, though for some of the world's poorest countries these remittances account for up to 25 percent of their GDP and remittances to low-income countries grew by 8.2% in the last year alone.

Jenny Abura argued on the Guardian's Katine site in 2009, that "despite the significance, the contribution made by the diaspora is largely ignored in the formal debate about development. By the same token there are few mechanisms that allow senders and recipients of remittances to engage with development activities at a formal level."

In order to leverage the massive capital inflow represented by these remittances, the World Bank suggests including remittances in countries' credit rating analyses and linking them to financial services such as microfinance and targeted instruments such as the increasingly-popular diaspora bonds. It also argues for mechanisms and new technologies to reduce the variable but often weighty transaction costs associated with remittances: according to the remittance prices worldwide database, sending $200 from the UK can entail an average transaction cost ranging from $7.78 (if sending to Pakistan), to $30.72 (if sending to Rwanda).

However, despite the World Bank's recent excitement, there is little consensus over the relationship between remittances and development.

For example, as remittances are private cash flows, typically from a migrant abroad to a family at home, it is not obvious if and how these individual private cash transfers can aggregate to impact well-being beyond the households which receive them.

It is similarly unclear how much of these remittance flows is used by households to cover day-to-day survival costs, how much is consumed and how much is invested. Though remittances might improve the short-term welfare of a household, and might boost consumption and demand for imported goods, some worry that they can contribute more to dependency than to development.

Critics in the Philippines, for example, lament that "the government has developed an unhealthy dependence on the remittances, turning a blind eye to their social costs, especially divided families and the reliance on them to pay for services while failing to build a sound economy that produces good jobs at home." Remittances to households in the Philippines have risen steadily in recent years and now account for an estimated 11.7 percent of the country's GDP.

Beyond concerns of dependency, others have raised additional issues, not the least of which is 'brain drain.' Some of the smaller low-income countries, like Haiti and Jamaica, have over eighty percent of their college-educated citizens living abroad. Remittances account for fifteen percent of Haiti's GDP and fourteen percent of Jamaica's.

Speaking at an October 2010 meeting of the African Development Bank in Tunis, Tunisia, the Nigerian writer and Nobel Laureate Wole Soyinka argued that "reversing brain drain is key to Africa's development" and that highly-skilled African migrants abroad need to be carefully and deliberately "wooed back." Over ten percent of Nigeria's tertiary-educated population has emigrated, along with between ten and thirteen percent of physicians born or trained in the country.

It is difficult to hypothesise the potential development impact of remittances without a better understanding of who migrates, and why.

Remittances show – on a very basic and human level – that someone has moved away, and that someone has been left behind. Yet though the World Bank's 256-page Factbook compiles the most up-to-date, publicly-available global data on migration and remittances, it says very little about the people who are migrating, working, and remitting.

Understanding what motivates remittance workers might not matter for a conception of development that counts rapid economic growth as its primary indicator. But they certainly do matter for a fuller, more people-centred conception of human development.

Thus while many unresolved questions come out of the World Bank's most recent research on migration, remittances, and development – Why did the financial crisis affect remittance flows so much less than it did aid budgets? Do rising remittances represent an implicit critique of dominant development paradigms? And there is one strong message that can be read between the lines: in order to "harness" the potential development impact of remittances, the development community must deepen its dialogue with the diaspora.